TaxTMI 
TaxTMI 
1960 (5) TMI 4
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....ssed, and answered the remaining in the negative, after modifying them. It has certified this case as fit for appeal to this court, and hence this appeal. The Commissioner of Income-tax, Bombay City, is the appellant, and the Khatau Makanji Spinning and Weaving Co. Ltd., Bombay (the assessee company) is the respondent. The assessee company has its year of account ending June 30 every year. At the close of the account year 1951, it carried forward profits amounting to Rs. 30,680. In that year, it appears it had earned a rebate by declaring dividends below the limit fixed by the Finance Act. For the account year 1952 its book profits were Rs. 28,67,235 less allowances for depreciation and tax. After these and other sundry adjustments, the ....
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.... year. The Tribunal, however, referred four questions to the High Court, of which the first need not be quoted because it was abandoned before the High Court. The other questions were: "(ii) If the answer to question No. 1 is in the negative whether the said provisions go beyond the ambit and scope of the Indian Income-tax Act ? (iii) Whether additional income-tax can be levied, assessed and recovered under the provisions of the Indian Income-tax Act ? (iv) Whether at any rate the additional income-tax has been legally charged under the Indian Finance Act, 1953, read with the Indian Income-tax Act ?" The High Court compressed the three questions into one, and it reads: "Whether additional income-tax has been legally charged u....
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....vidend declared by the company as a notional income and made it a part of the total income of the previous year. It could have provided for rectification of the assessment of the year in which these profits were charged at a lesser rate, and we now find that Parliament has actually provided for this in the Finance Act, 1956. Or, finally, it could have provided for a penalty imposed upon a company which transgressed the direction of Parliament that it should not pay dividend beyond a particular ceiling... The ambit of section 3 is clear and the ambit is that the tax to be levied must be a tax on income and the power of Parliament is equally clear and that is to fix the rate at which income-tax is to be charged upon the total income of the pr....
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....espect, very rightly pointed out that the Income-tax Act puts the tax on income or something which it deems to be income. In other words, the tax deals with income and income only. It further provides that this tax shall be collected at a particular rate on the total income for which provision shall be made in an yearly Central Act. The Finance Act also follows the same scheme, and lays down the rate at which the tax is to be collected. In the Finance Act, the tax is laid on the total income, but two provisos modify the rate under certain circumstances. We may at this stage read the relevant provision (Part I, First Schedule): " B. In the case of every company-- Rate Surcharge On the whole of total income Four annas One-twentieth o....
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....lated at the rate of five annas per rupee on the excess dividend.... For the purposes of clause (ii) of the above proviso, the aggregate amount of income-tax actually borne by the excess dividend shall be determined as follows:-- (i) the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years immediately preceding the previous year as would be just sufficient to cover the amount of the excess dividend and as have not likewise been taken into account to cover an excess dividend of a preceding year ; (ii) such portion of the excess dividend as is deemed to be out of the undistributed profits of each of the said years shall be deemed to have borne tax,-- (a) if an ord....
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....a part of the total income of the previous year under assessment, the purpose of the Act clearly fails. Income-tax is a tax on income of the previous year, and it would not cover something which is not the income of the previous year, or made fictionally so. The Finance Act could have gone further, as pointed out by the learned Chief Justice in the extract quoted, and made the profits a part of the total income of the previous year under assessment, but it did not do so. The Finance Act could have also resorted to some other fiction, which might conceivably have met the case ; but it has failed to do so. Even if one considers the dividends as having come out of the profits of preceding years, they do not become the income of the relevant pr....